In today's extremely competitive business environment, hoteliers have to face several challenges, such as low average room rates, rising labour costs, benefits expenses, hindering the profit generation of the business. In this scenario, small individual hotels are at risk of generating profit while operating the property on their own. The unprecedented corona-virus crisis has further worsened the situation, where the smarter way ahead for an independent hotel is to align with a flexible and reputable brand with a proven track record. Consequently, more and more stand-alone hotel owners are eyeing established hotel brands for management or franchise contracts.
Before elaborating on the pros and cons of this business model, let us talk about the options available for hotel branding and management.
Management by the Brand: A single firm operates the hotel under a specific chain or brand, and the hotel owner hands over the property with some obligation rights, defined in the management contract.
Franchise with a Third Party Manager: The hotel owner enters into two agreements- one is a license agreement with a brand, providing the right to operate the hotel under the specific brand name, and the second is with a third-party manager, who is actually managing the property.
Self-Managed Franchise: The third alternative for a hotel owner is to obtain a license or franchise to operate the brand but manage the hotel himself.
With the fundamental difference clear, the question pertaining to the benefits of partnering with hotel brands and operators for stand-alone hotels is answered below.
The lack of resources to match the international standards is one of the biggest disadvantages for an independent hotel. Brands provide several benefits. Both from the standpoint of quality and consistency of services and standards, and lender comfort, brands have an edge over stand-alone hotels.
Nowadays, customers are far more technologically aware and tech-savvy. Global travellers feel more comfortable being with an established name, with assured standards of service and quality. While booking hotels, they prefer paying a higher amount for a well-recognized brand rather than a non-branded hotel. Due to this difference, local hotel groups have to compromise on rack rates to increase occupancy. Furthermore, their direct channels for booking are not well-optimized to drive demand, and the stand-alone hotels have to thereby pay a hefty commission to third party booking agencies or OTAs.
International brands and operators also help in optimizing marketing and sales efforts, reducing channel costs, provide operational and management support, financial expertise, as well as commercial services, along with widening the route to international distribution. Brand operators boost the valuation of the asset, guaranteeing high standards to gain approval from globally recognized financial bodies.
In conclusion, brands provide services that drive demand, such as loyalty programs, quality control, reservation systems, websites, and brand marketing. Therefore, in order to attain visibility and become successful within the marketplace, individual and unaffiliated properties should sooner or later form a commercial alliance with brand operators to enjoy the benefits of economics of scale and scope. After all, uniqueness and innovation are the keys to success in the hospitality industry.